Apple’s Cue Felt Pressure to Finish E-Book Deals for Jobs

Apple Inc. (AAPL) executive Eddy Cue told a judge he felt extra pressure to reach deals with e-book publishers in time for the introduction of the iPad in 2010 because of company cofounder Steve Jobs’s precarious health.

“Steve was near the end of his life when we were launching the iPad. He was really proud of it,” Cue said yesterday in the Manhattan trial of the government’s e-books antitrust case against the company. “This had extra meaning to me.”

Cue, who the government called the “chief ringleader” of a conspiracy to fix e-book prices, testified that he spent all his time in tough negotiations with the six biggest publishers as a late January 2010 deadline for setting up Apple’s iBookstore approached. Cue said earlier that he didn’t know the chief executive officers of the publishers were talking with one another during the six weeks he spent getting them to sign e-book contracts.

“If I was awake, I was negotiating,” he said.

Cue’s tale of hard-fought talks with the publishers runs counter to Justice Department claims that he led an agreement among them to raise the prices of e-books and to pressure Amazon.com Inc. (AMZN) (AMZN), the biggest e-book seller, to abandon its practice of selling electronic versions of best-sellers for $9.99, below cost.

Five publishers signed “agency” contracts with Apple, allowing them to set retail prices on e-books with Apple getting a 30 percent cut: Verlagsgruppe Georg von Holtzbrinck GmbH’s Macmillan unit, CBS Corp. (CBS)’s Simon & Schuster, Lagardere SCA (MMB)’s Hachette Book Group, Pearson Plc (PSON)’s Penguin unit and News Corp.’s HarperCollins. All five settled with the government, avoiding trial.

Random House

A sixth publisher, Random House Inc., didn’t sign an agency agreement with Apple and isn’t involved in the U.S. suit.

In testimony earlier yesterday, Cue said he wasn’t aware of any e-mails or of the more than 100 phone calls among the five CEOs.

Cue said he “struggled and fought” with the publishers, in individual talks, to get them to sign contracts to sell e-books on Apple’s iBookstore. He testified that he doesn’t believe the CEOs were coordinating over their negotiations with Apple.

“If they were talking to one another, I would assume I would have had a much easier time getting those deals done,” Cue said.

Apple Fighting

Apple denies it conspired to fix prices and is fighting the case, which U.S. District Judge Denise Cote will decide without a jury. Apple CEO Tim Cook, at an industry conference last month, called the Department of Justice’s case “bizarre.”

Justice Department lawyer Lawrence Buterman questioned Cue yesterday, trying to show that Apple took advantage of the publishers’ dislike of Amazon’s $9.99 e-book pricing to get them to raise prices across the industry.

The government claims Cupertino, California-based Apple got the publishers to force Amazon and other e-book retailers to switch from a wholesale pricing model, under which the retailers set prices, to agency pricing. A so-called “most-favored nation,” or MFN, clause in Apple’s contracts allowed it to match low prices set by other e-book sellers.

Cue, an Apple employee for 24 years, testified that he reported on his talks with publishers to Jobs.

Price Tiers

Buterman yesterday asked Cue about a Jan. 14, 2010, e-mail in which Cue presented Jobs with a set of proposed price tiers for e-books.

“I can live with this, as long as they move Amazon to the agent model too for new releases for the first year,” Jobs wrote in a draft response. “If they don’t, I’m not sure we can be competitive ...”

Cue testified that he explained to Jobs that the MFN clause meant that Apple could match Amazon prices even if it didn’t switch to agency pricing.

The Justice Department also introduced an e-mail exchange between Jobs and a man named Sethh Humphrey in February 2010.

“With Apple strong arming Amazon into raising e-book prices, this is detrimental to my reading as a college student,” Humphrey said. “You have so much. Wouldn’t it be okay for us little guys to have something?”

Jobs answered: “It’s the publishers that are raising prices, not Apple.”

“Yes, but the change in prices only comes after your company has let major publishers set there own prices,” Humphrey responded.

“How do we stop the publishers from setting their own prices and terms?” Jobs asked. “They own the distribution rights to the books, not us. They were already rebelling against Amazon before we ever talked to them.”

The case is U.S. v. Apple Inc. (AAPL), 12-cv-02826, U.S. District Court, Southern District of New York (Manhattan).

To contact the reporter on this story: Bob Van Voris in federal court in Manhattan at rvanvoris@bloomberg.net

To contact the editor responsible for this story: Michael Hytha at mhytha@bloomberg.net

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